Fri, Jul 03, 2009
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I've Been Offered A Single Note Cheap, Help! |
loon
1167 Posts
Member Since: 03/27/2003
Duluth, MN
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Posted: 20:22 on 10-07-2008
I got a call from California offering to sell a note in my state, guy found my ad in yellow pages online. Sounded like a bulk buyer of notes selling off the worst ones. Not too efficiently in my opinion if he's Googling for buyers, but....
Note buying is not my forte, but while talking I asked the address, and he told me the street and zip, so checked values online, Zillow said nothing on the short street is worth less than $200k, not bad considering it's a non-performing $128k 1st mortgage (8.25% ARM) that he's expecting to lose money on.
He won't give me exact address til I sign disclosure that I won't shop his note. Then I thought "I've never bought a note, how the heck do I do that?" Pull and O & E, do what I'd do for any other buy? Note buyers, any tips?
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dirtman89
224 Posts
Member Since: 08/04/2003
Derry, NH
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Posted: 01:13 on 10-08-2008
Some important questions are, when was the last payment made, is the home owner occupied, when was the last appraisal done and for how much? You buy a note through a title co just like a prop. They sell you the mortgage via an assignment.
Just remember that you lose control of when you can get your $$ back out since you don't own until you foreclose. The homeowner could file bk and tie you up for a while.
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commercialking
2918 Posts
Member Since: 03/26/2004
Chicago, IL
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Posted: 08:21 on 10-08-2008
Or the homeowner could re-instate and tie you up even longer.
On the other hand if you can buy this thing for .50 on the dollar even if the homeowner re-instates you've got $65,000 invested at almost 17%-- not too bad.
Of course you can always hope that they continue in default, move out quietly and give you a deed in lieu of foreclosure. You may even be able to give them incentives to do so in the form of some moving out cash, etc.
Bad news, of course, you have to pay cash for the note, so no leverage.
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JohnMerchant
2046 Posts
Member Since: 04/23/2002
Tacoma, WA
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Posted: 11:53 on 10-08-2008
Another factor for you to consider:
Whenever a delinquent note is bought and the buyer knows it's delinquent, the buyer steps into the shoes of the seller, legally.
That note buyer then assumes and takes on the same "knowledge" of the note, the debt, any defenses the note payor might have against the original note payee, etc.
If you or I buy a note and we're told it's current, and we don't know better, we are what the law calls a BFP (bona fide purchaser) and those defenses the note payor might have had agains the note payee, are NOT then usable against us.
So is it good or bad to buy a known delinquent note?
Well, depends on why it'sdelinquent and it might or might not be a good deal.
If the note is delinquent because the buyer is claiming he was defrauded, then I'd say no and I wouldn't want the note as I don't want to take the chance I might be held liable for fraud, pay buyer's damages, etc.
But if it's delinquent simply because the buyer's run out of money, if I can get a written statement (estoppel letter) from that buyer that the property is OK, he's not making any kind of claims against the seller, etc, then I might buy it if I think I can either get the note paid or take the property in foreclosure or get deed for it, etc.
I once watched an older law partner take a client's note for a fee, and he very deliberately did NOT ask any questions about its current paid status, etc. because he did NOT want to know and wanted to remain a BFP.
Further, he had the client (note seller) give him a letter stating that he'd told my partner nothing about the house buyer, his current status, or anything else about the deal so that note payor could later make NO claims of any kind against my partner.
[ Edited by JohnMerchant on Date 10/08/2008 ]
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